Iran has reduced the quarterly price for its flagship crude to the lowest in three years in a bid to lure Asian buyers to lock in more term supplies next year.
The price reduction is just one of the steps taken by the OPEC producer to ramp up output and regain market share lost since US and European sanctions cut its crude oil exports by more than half, Reuters reported.
Asian buyers have called for lower prices amid a supply glut that has made it tougher for Iran to elbow its way to higher sales volumes despite optimism over the deal that eased some of the sanctions in exchange for modification on Tehran's nuclear work.
An executive at a North Asian oil refiner said it is in talks with the National Iranian Oil Company for next year's term supply, but that Iran's crude prices have been uncompetitive.
Iran set its official selling price (OSP) for Iranian Light crude for October at a 25-cents-a-barrel premium to Oman/Dubai, down 35 cents from the month before, two sources with knowledge of the matter said on Thursday.
This puts Iranian Light OSP at a 15-cent premium to Saudi's Arab Light in the fourth quarter — the lowest quarterly price since the last three months of 2012, according to Reuters data.
Iran sets its OSPs every quarter at differentials to Saudi prices, following discussions with key customers.
In the competition for market share, Iran and fellow members of the Organization of the Petroleum Exporting Countries, including Kuwait and Iraq, have dangled carrots in the form of extended credit and free oil deliveries in addition to outright price cuts to increase their sales.
Storage facilities
Prior to the most recent round of sanctions which went into effect three years ago, Iran was able to sell oil to 21 countries. By mid-2012, that was down to six: China, India, Japan, South Korea, Taiwan, and Turkey. Rather than immediately pull back on production, Iran decided to store its excess crude. As it scrambled to build onshore tanks, the government loaded millions of barrels onto its suddenly out-of-work fleet of crude-carrying vessels.
The Iranians eventually reduced their oil output by about a third, to a low of 2.5 million barrels a day in mid-2013, according to data compiled by Bloomberg. As exports fell to 1 million to 1.5 million barrels a day, Iran kept filling its tankers with oil.
Since the July-14 nuclear agreement between Iran and six other nations, Iran has been preparing to ramp up its exports and sell that stored oil.
A small number of Iranian tankers believed to have been storing crude have left the Persian Gulf in the past several weeks, according to data compiled by Bloomberg. Three of those ships have since disappeared from detection by failing to report their location.
Iran's crude output has been rising for two years and now stands at about 2.9 million barrels a day, the highest since 2012.
Oil Minister Bijan Namdar Zanganeh says sanctions will be lifted sooner. When they are, he says, production will rise immediately by a half-million barrels per day, and after four to five months, by an additional half-million barrels. He says that by then, "we will reach to a figure between 3.8 and 3.9 million barrels a day".
Much of the money Iran has made through its remaining crude exports since 2012 is being held in escrow accounts in various countries which are still buying Iranian crude. To reduce Iran's access to cash, Congress passed a law requiring that Iran spend oil revenue only on goods from its customers. The Department of the Treasury estimates Iran will be able to retrieve half that amount — or about $56 billion.
Since July, political and business delegations from Austria, Germany, Italy and Spain have visited Tehran. "I think European companies are very eager to be involved in our projects," said Zanganeh.
Iran has not met with US companies, he added. "It seems they have received the order from the US government not to have the meeting. Like others, the doors are open for them."